To Paraphrase Mark Twain -- The Reports of America's Death Are Greatly Exaggerated

01/30/2014 09:40 am ETUpdated
Apr 01, 2014

Geography has made America one of the lucky countries. But luck only goes so far, and a truly successful nation needs to be prudent enough to take advantage of that luck. Over the years, with all the agonizingly slow checks and balances demanded by a true democracy, America has been smart enough to develop the institutions needed to harness and grow its luck.

Luck again, together with investments from government research and private enterprise in drilling technology, has struck America. The United States has entered into a new energy boom, that will help propel its economy to new heights but also radically change global perceptions in the post 2008 world.

Five years ago, during the heart of the great recession, many in the world saw the United States and its very pluralistic model of capitalism and liberal democracy as a concept that had seen better days, as a failed model.

Now it is America, with all the arguments against its plodding, gridlocked government, that is leading the world's economy out of the recession. American is leading because of a series of correct government decisions, such as the stimulus, the auto bailouts, the stress test for its banks, and the QE policy of the Fed. But America is also leading because of its investments in energy.

Eric Spiegel, president and CEO of Siemens Corporation, declared that abundant, cheap energy is fueling a U.S. manufacturing renaissance and the globe's "single greatest investment play for a decade."

Cheap energy combined with automation is creating a manufacturing renaissance in the United States. American manufacturing production is growing at the fastest pace in more than a decade. In the auto industry alone US factories are expected to report sales of 4.02-million light vehicles in the period from October to December, marking the best fourth quarter in 14 years.

The re-emergence of the United States as the growing -- not declining economic power (a pattern that has happened several times before) -- will have tremendous ramifications throughout the world. Will the United States again be the sole world hegemon, in a position to dictate terms? Probably not. U.S.-nurtured globalization has successfully let that cat out of the bag. But the United States will be in a position again to be the paramount leader demonstrating soft power both economically and institutionally as well as military power.

The economic world is not a zero-sum game, and in principle the renaissance of the United States economy shouldn't undermine other nations' economies or political environments, but in fact it has and will.

It is forcing Russia to be more competitive in its oil and gas pricing, to lock in cheap long-term contracts, causing a significant fall in Russian oil profits. This is putting direct pressure on Mr. Putin's autocracy, where revenues from crude oil and natural gas account for half of Russia's fiscal budget. This fall in profits is not because the U.S. at the moment is shipping any major quantities of natural gas or oil to Russia's customers at this time. It is because those customers can now buy Mid Eastern Gas that was otherwise designated for the United States.

Europe is still struggling with its concepts of sovereignty versus fiscal and monetary policy. But it is also worried about its competitive position vis-a-vis the U.S. in heavy manufacturing. A recent report by the European Commission noted that electricity prices for industrial consumers in Europe are now more than double the price in the United States.

The so-called Emerging Markets -- Brazil, India, Indonesia -- are in a different position. As we saw from the markets this week, as the U.S. Economy grows and the Fed tapers and projected U.S. interest rates rise, Emerging Market investments become less competitive. When the Fed was purposely keeping US interest rates low to stimulate the American economy, investors look to the emerging markets for better returns. Now, the unwinding of the Fed's stimulus is removing a key pillar of support for emerging-market assets, especially their currencies.

And then there is China. No other country in the world has benefited so much from U.S.-fostered globalization, and probably no other country in the world will be as directly and indirectly affected by U.S. growth as China. First there is the issue of a reduction in export competitiveness. Cheap energy for industry in America, along with automation are now beginning to trump China's unit labor cost advantage in heavy manufacturing.

In order to continue to grow, China must redirect its economy towards domestic consumption. But can it? The revival of U.S. industry plus the development of other low-cost manufacturing centers for inexpensive goods, is demonstrating that the low-hanging fruit in China (cheap labor for export manufacturing) already has been picked. China is now possibly facing an insurmountable growth wall fortified by vested interests that will inhibit any change.

Given these stresses, what will be the cost of change for China and the world? Will the Chinese government in order to protect itself politically from attacks on the right as it tries to reform China's economy, be forced to become more nationalistic and more aggressive internationally?

Beyond the need to reform its economy, China is confronted by U.S. economic growth in the realm of soft power within its periphery. For the last six years China has been emphasizing to its neighbors that the U.S. is at best a model for the past; that its neighbors should loosen their ties with the United States; that it, China, is the relevant power in the Pacific, the true model for economic growth and governance.

There is no denying China's explosive growth over the past 40 years, but the reality now is more similar to a paraphrasing of Mark Twain's famous quote, "The reports of America's death are greatly exaggerated."